Gattaca PLC Full Year Trading Update and Notice of Results (2755T)

TIDMGATC

RNS Number : 2755T

Gattaca PLC

17 July 2020

17 July 2020

Gattaca plc

("Gattaca", "the Group" or "the Company")

Full Year Trading Update and Notice of Results

Gattaca plc (LSE-AIM: GATC), the UK's leading specialist Engineering and Technology recruitment business, today provides the following trading update for the year ending 31 July 2020.

Summary

 
 --   Trading during April, May and June 2020, reflecting the impact 
       of the UK Government measures due to COVID-19, has been 41% below 
       last year 
 --   Significant action taken to improve liquidity; the Group is now 
       in a net cash position with strong working capital and liquidity. 
       New covenants agreed with principal lender, HSBC, through to July 
       2021 
 --   The Group-wide Improvement Plan has been accelerated, with particular 
       focus on improving sales impact and client service, and on cost 
       reduction 
 

Performance and trading

Whilst the COVID-19 pandemic has impacted Group performance, trading over the period has been stronger than the Board's initial expectations following the imposition of the UK-wide lock-down. Trading during April, May and June 2020 has been 41% below last year (contract 36% and perm 52% lower).

Overall, continuing operations' Net Fee Income (NFI) for the year ending 31 July 2020 is expected to be in the region of GBP54m (FY 2019: GBP69m), approximately 22% below prior year. Previous consensus forecasts were GBP64m. The majority of the shortfall is in UK NFI.

The Group's international operations have performed better than expected, having implemented cost reductions over the last few months. Our China business is now operationally closed.

During this period, the health and safety of our colleagues has been our key priority. All staff are working remotely and were fully operational within a few days of the lock-down announcement and we continued to win new business both in contract and permanent recruitment. In the UK, we have utilised the Government furlough scheme and the Board, executive management and all staff have taken a temporary 20% salary reduction for a period, with the staff having now been returned to full pay.

As we see some encouraging signs of increased activity, we are beginning to bring staff back from furlough and have reopened our offices following staff engagement and reconfiguration of spaces to be COVID-compliant.

Net cash and financing

The Group is now in a net cash position. At 30 June 2020 we held net cash of GBP23m (31 January: net debt GBP(3)m; 31 July 2019: net debt GBP(25)m). Non-recourse invoice financing as at 30 June 2020 (not included in reported net debt) was GBP22m (31 July 2019: nil).

Our strong working capital management continues, including specific actions to better align our contractor payment terms to normal practice in other industries and organisations. This is a phased programme and we expect further benefits over the next 18 months. The move of contractor payment terms has contributed approximately GBP2m to date.

In addition, reduced trading levels of our contract business has led to a release of working capital and our cash flow has also benefitted from the deferral of an HMRC payment amounting to GBP10m, which is not due until 31 March 2021.

These actions have enabled us to provide support to our customers and as a consequence we expect to see a slight increase in our days sales outstanding number.

Our bank, HSBC, continues to be supportive and new covenants for our Revolving Credit Facility ("RCF") have been agreed through to 31 July 2021.

As of 30 June 2020, available liquidity (Group cash balances plus total additional funds which can be further drawn under our invoice financing facilities) stood at GBP59m. The Group's total invoice financing facility limit is GBP75m.

Following our previously agreed repayment schedule, the RCF balance will reduce to GBP8m at 31 July 2020, and to GBP5m by 31 October 2020. The RCF is the only element of our financing that includes covenants and our strong liquidity enables us to repay this and eliminate covenant requirements entirely should we choose to do so.

Improvement Plan and cost reduction

During the period, we continued to implement our Group-wide Improvement Plan, and we have accelerated a number of planned changes. This has allowed us to drive efficiencies through our operations, including increased digitisation, changes to business terms, improvements to core processes, and a restructuring to enhance our Solutions service. We have also implemented a more focused approach to how we target industry sectors and are aligning our talent more closely to our operating model with respect to sales and client delivery. The Group has taken action to reduce costs in respect of its international operations and all of these changes are already having a positive impact.

Through the combination of these actions, we are targeting annualised cost savings in excess of GBP3m starting around the end of H1 2021. Consequently, we have commenced a consultation process with staff.

Notice of full year results

The Group expects to announce its full year results for the 12 months to 31 July 2020 on Wednesday 4 November 2020.

Kevin Freeguard, Chief Executive Officer said:

"The COVID-19 pandemic has created unprecedented challenges for Gattaca and for UK industry in general. However, I am pleased with the way the business has responded and the resilience we have shown. During the period, we have taken a number of measures to strengthen the business, including the acceleration of the Group-wide Improvement Plan, and the outstanding response from our staff to the challenges arising from COVID-19 has enabled Gattaca to perform ahead of our expectations in these difficult circumstances. On behalf of the Board, I would like to express my thanks to the staff for their dedication through these extraordinarily difficult national times.

"The balance sheet has continued to improve beyond our normal cycles, increasing our financial stability, and the significant liquidity will allow us to aggressively pursue growth opportunities to take advantage of the inevitable recovery in our markets. In particular, we are well aligned with the anticipated UK Government investment targets such as Infrastructure and other STEM-driven sectors where Gattaca has a significant track record and capability.

"Gattaca is a resilient business and I am confident that our performance through this crisis, together with the acceleration of the Improvement Plan, will enable Gattaca to emerge stronger as the recovery takes shape."

The information communicated in this announcement contains inside information for the purposes of Article. 7 of the Market Abuse Regulation (EU) No. 596/2014.

For further information, please contact:

 
Gattaca plc                                 [phone] 
Kevin Freeguard, Chief Executive Officer 
 Salar Farzad, Chief Financial Officer 
Liberum Capital Limited (Nomad and 
 Broker)                                   [phone] 
Bidhi Bhoma 
 Robert Morton 
 Euan Brown 
 
Citigate Dewe Rogerson                     [phone] 
Nick Hayns 
 Louise Mason-Rutherford 
 Lucy Eyles 
 

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July 17, 2020 02:00 ET (06:00 GMT)